RBI MPC Meet: Why the repo rate was cut by the largest-to-the-to-date 50 basis points; RBI Governor Sanjay Malhotra says
RBI MPC Meet: RBI Governor Sanjay Malhotra surprised everyone by cutting the repo rate with the expectation of more than 50 basis points. Experts had widely predicted a 25 -base point cut cut, except for exceptions such as SBI and Morgan Stanley, who estimated the front loading of repo rate cuts. With today’s cut, the repo rate is now 5.5%below 6%. RBI has now cut the repo rate in 100 basis points since the beginning of this year. This means that there is good news for the borrowers as the home loan EMI is expected to be reduced to a great extent during the year as the full profit of 100 BPS cuts passes by banks.
Why did RBI cut the repo rate by 50 BPS? Explained
We take a look at the argument for the decision of the Monetary Policy Committee:
- The estimated inflation rate for the year has reduced by 3.7% from a previous estimate of 4.0%.
- During the last six months, inflation has seen a significant decline, moving beyond the level of tolerance with a higher level than the target, extending widely ease in areas, to the tolerance band in October 2024.
- Current estimates for both immediate and prolonged assurances that the headline inflation will align with a continuous 4% target. In addition, there is a strong possibility that inflation figures will be reduced by the target throughout the year.
- The approach to food inflation continues, while core inflation is estimated to remain moderate, which is affected by the reduction in international commodity with a recession expected in global economic growth.
- However, the growth of GDP is lower than the desired levels, especially due to the challenges and the prevailing uncertainty of the global market, the RBI said.
- Given these circumstances, it is important to promote domestic consumer expenses and capital investment through appropriate policy measures to increase economic speed, RBI said.
- The RBI said, “This changed developmental dynamics continues not only to reduce the policy, but also moves to cut rates to support development,” RBI said.
Also check this. RBI MPC live updateThe Monetary Policy Committee (MPC) cast its votes, resulting in a decision to reduce the policy repo rate by 50 basis points, making it 5.50%. Five members- Dr Nagesh Kumar, Prof. Ram Singh, Dr. Rajiv Ranjan, Dr. Poonam Gupta and Sanjay Malhotra supported the lack of 50 basis points. However, Saugata Bhattacharya opted for a slight reduction of 25 basis points in the repo rate.“The global environment remains uncertain, it has become even more important to focus on domestic development amidst constant value stability. Accordingly, today’s monetary policy actions should be seen as a step towards promoting development for high aspirational projections,” RBI Governor Sanjay Malhotra concluded.
